This Week in Startups
00:14:50 · Jason Calacanis, Lon Harris
[00:14:50] S0: I I would have a thoughtful discussion with him. Let's keep going. Be great. [00:14:53] S1: Alright. We'll do we'll we'll do one more story here before we, move on. We gotta talk about this DoorDash thing. So DoorDash, they're buying Instacart in a cash and stock deal worth around $17,000,000,000. This was announced yesterday. DoorDash will pay $65 a share. It's about a 25% premium over Instacart's October 22 closing price. Instacart, of course, went public in 2023 following a big pandemic boom when people were ordering groceries instead of leaving the house, but they've struggled to keep pace with Uber, Amazon, and Walmart in the category. Here's the pitch. Grocers will get DoorDash's delivery network plus Instacart's grocery and fulfillment tech while customers get to stop paying for two memberships, DashPass and Instacart plus. The company's claim that's gonna save about a $100,000,000 per year. An anti monopoly group, of course, already asking regulators to block this. They're saying that the combined company would control nearly 60% of third party grocery delivery in The US. So I guess first question to you, does this go through and is this a monopoly risk to put DoorDash and Instacart together?
00:16:00 · Jason Calacanis, Lon Harris
[00:16:00] S0: Okay. So third party grocery delivery service is like not grocery delivery. So already the people who are shaking the antitrust sword there and waving it around have narrowed it. So you need to always be intellectually honest when you look at something like a merger or acquisition. So if you're looking at the Warner Brothers or CNN or Discovery, and you're like, oh my god, like, is this consolidating everything? You know, sometimes people will leave out TikTok and YouTube. So they're like, oh, it's gonna make a 60% contributor. And then you include YouTube, it's like, going to make a 30% consolidation. Maybe that consolidation is actually necessary to go up against it. So this is... If we were to look at all groceries delivered, you're going to have to take into account Amazon and Whole Foods. You're to have to take some of these people like Walmart have their own delivery services. H E B launched their own delivery service here in the great state of Texas, and we love our H E B here. For those of you who don't know, it's incredible. [00:17:07] S1: Yeah. Yeah. And Central Market too. Are you hip to Central Market? That's their
00:17:07 · Lon Harris, Jason Calacanis
[00:17:07] S1: Yeah. Yeah. And Central Market too. Are you hip to Central Market? That's their [00:17:11] S0: their Central Market is their upscale brand. It's kinda like their, Whole Foods. Incredible company and incredible brand. So what really matters... Under Lina Khan, she would be losing her mind right now over this. Under president Donald Trump, this is an easy, like, wave it through. Like, yeah, just keep keep going. You know the you know the Bought up a piece of your last week. Play the security guard here who's waving people in. Remember that one where he's frisking people by going like this? You ever seen that? [00:17:43] S1: Yes. Yes. He's going like a round in, the laziest way. [00:17:46] S0: He doesn't even touch him. He's just like, yeah. Whatever. That's that's [00:17:49] S1: the Yeah. [00:17:50] S0: That's Make me a make me a FTC meme with an FTC jacket of, like, whoever's running it. And, like, Lina Khan would be tackling the person. This person's, like, waving them through. [00:18:03] S1: Just that Cool.
00:18:05 · Jason Calacanis
[00:18:05] S0: For M and A. So yum yum. It's gonna go through. That's why it's happening now, I'll be totally honest. Yeah. Here's your... So this is gonna go through real fast, and that's why things are being done. Anything you see done in the next twelve months is because business people saying Yeah. We got eighteen months to to lock this up. And supposedly, this is gonna take a year to do. Sure. I I am a I'm a shareholder in DoorDash and Instacart and Uber. I have all three of those in my portfolio. So whatever happens here, I'm arguably gonna win on some level. I do think this is a complete overpay and that it's a bad idea for Uber to buy it. Why? DoorDash. I know that. Saying Uber was in the running here. It was a bad idea for Uber to even be in the running here because their stock is... It's better to buy your own stock when you would have to overpay. DoorDash and Instacart, if you look at their multiples right now... If the... If you look at the PE data, DoorDash, 88 times trailing price earnings is their valuation, and I guess Instacart was 25 times their past earnings. In other words, DoorDash's stock is overvalued, Instacart's undervalued, so it makes this a more efficient purchase for them. Now, Uber stock is undervalued as well, so it would be more neutral. What you have to ask yourself, and I was talking to somebody who was at the top of these companies previously, this cohort of companies, like literally top five player in this thing, he's like for $17,000,000,000 you could do a lot more, either buying back your own stock, investing in automation. So it feels like this is something Uber walked away from and that these guys embraced because they have a high stock price. When you have a high stock price, let's say, remember SpaceX bought Cursor? They had a high stock price, so it makes total sense to do that. That's when you do it. When you have a high stock price, high multiple, you put your equity work. When it's lower, you don't. Instacart, I believe, is a slow growth company. What are the... Anytime we do these, we're going to always talk about Instacart's growth and how they're doing as a business. Do you have that teed up in your notes? How Instacart is doing as a business? This is the bad news for, like, this business. Instacart quarterly revenue from 2023 to now. We're sitting here three years ago.
00:20:41 · Jason Calacanis, Lon Harris
They were at $8.00 $3,000,000 And we're sitting here now, and they're at 10... 1,000,000,090 I 5 in mean, this is an incredibly slow growth company. [00:20:51] S1: It's the... I mean, it's the... That pandemic story we've seen pay... Play out a lot, which is obviously a lot of businesses experienced a huge surge when everybody was locked inside their homes, but growing after that, continuing to add on to that boost is a huge challenge, and and it just doesn't look... There's so many competitors in this space. I feel like Instacart is just one name of many now.
00:21:14 · Jason Calacanis
[00:21:14] S0: And, you know, then you look at earnings next, like, it a money printing machine or not? One of the nice things I will say here is people who like Instacart really do like the service. Sure. But when you look at GAAP net income here, as Claude is doing for me in real time, you can see that okay? Yep. Yeah, the business is flat in terms of earnings. We're sitting here three years waiting for this thing to become a money printing machine. Now, you were to put up DoorDash, which just recently, you know, last year or two, started becoming a money printing machine and Uber obviously, maybe four years ago, started that journey. The reason Instacart is the seller, not the buyer, is because it's not a thriving company. And that's what happens. If you stop growing, you become the acquisition target. And there's going be many, many more companies like this. There is an interesting rub to this. The Instacart business was really based on advertising. Advertising, my understanding at Instacart, is where the profits come from. And so a lot of these businesses now are making over $1,000,000,000 from advertising every year. Uber has massive advertising. This is like a very interesting one to look at. Instacart advertising and other revenue. I'm not sure what's in other revenue, but three years ago, they're sitting on $243,000,000 in advertising a quarter. This last quarter, $3.31. So they're making $1,200,000,000 in advertising. And its total share of revenue is about 30% of their revenue is from advertising. Most people don't understand that part of the business yet. So why is that important? You look at advertising businesses like Meta, you look at advertising businesses like Google, those businesses are fantastic, obviously. One use psychographics and creepiness meta, right? They know everything about you, your friend group. Right. Your friends looking at like a certain type of car. They show it to you. If you engage with it, then they show it to you, plus your family members. It's all pretty dark. Then they show it to the people who live around you and work with you, and then all a sudden everybody's talking about this new, you know, Toyota, whatever it happens to be. And then Google, obviously, you type in a keyword and it sends you directly to the Toyota, you know, whatever Honda Accord, Toyota Prius, and, you know, you pay per click there.